STAMFORD, CT, NOVEMBER 29, 2004 – Multinational companies are responding to the rising costs and heightened financial volatility of pension and employee benefit plans by increasing the head office�s control of employee benefit programs and their financing, as well as increasing the involvement of the Finance department. This is the main finding of a recent survey of the world�s leading multinationals by Towers Perrin, a global professional services firm.
The survey of 134 global companies, Managing Employee Benefits Globally: Today�s Increasingly Disciplined Approach , found that controlling benefit costs and managing financial risks – particularly with regard to global pension obligations – are top benefit management concerns for multinational companies today, followed closely by the need to ensure greater consistency and transparency in financial reporting.
“Given the cost volatility of pension and other long-term benefit obligations – such as retiree medical benefits – sound worldwide benefit management policies and governance processes are a must for multinational companies today,” said Douglas Downard, a Towers Perrin principal and senior consultant in the firm�s HR Services business global consulting group. “And for multinational companies with significant benefit exposures in multiple countries, a disciplined management framework involving close cooperation between HR and Finance, and good communication between corporate and local managers, is essential to the effective management of benefit costs and risks.”
To meet these management concerns, corporate headquarters are exerting more influence over worldwide benefit management in 51% of the companies surveyed. And, although Human Resources continues to play a lead role in setting benefit objectives and policies, an increasing focus on the financial performance of pensions and other employee benefit programs has prompted 37% of companies to report changes in influence of functions, with 45% reporting a growing influence of the Finance department.
The survey also reveals the size of the benefit liabilities at these multinationals: 26% of companies report global pension liabilities of more than 25% of their market capitalization, including 3% of the companies reporting global pension liabilities of more than 100% of their market capitalization. These pension liabilities are also truly global: 31% of the participating companies have more than 50% of their pension liabilities outside of the headquarters country.
The growth in headquarters and cross-functional control of global benefit policies has led to more than two-thirds (70%) of the respondent companies establishing central committees or management teams with specific responsibility to oversee pensions and other employee benefits on a worldwide basis.
These systems and management changes at multinationals have a direct impact on the way companies are financing employee benefits. Multinational pooling arrangements (already used by 58% of the companies surveyed) and captive insurance structures (cited by 20%) are examples of increasingly sophisticated management techniques used by global companies to finance employee benefits.
There has also been marked growth in the number of multinational companies appointing global coordinating actuaries to improve the information and insights that they receive about their pension and benefit liabilities globally. Thirty-four percent of respondent companies now have global coordinating actuaries, 6% intend to appoint one within 18 months and a further 14% are considering appointing a global coordinating actuary.
“The drive for greater transparency in financial reporting is prompting companies to ensure consistent assumption-setting processes and accurate valuation results on a worldwide basis,” said Downard. “A global coordinating actuary can greatly enhance the quality and efficiency of the pension valuation process.
“While the survey finds there is growing global consistency among multinationals� philosophical approach to worldwide benefit governance, there is a marked difference in the development of the sophistication of benefit practices,” added Downard. “Many companies are beginning to grapple with the challenges of creating global benefits consistency, while others are already implementing best practice solutions that are robust from an operational and financial risk management perspective.”
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve their performance through effective people, risk and financial management. Through its HR Services business, Towers Perrin provides global human resource consulting and administration services that help organizations effectively manage their investment in people. Areas of focus include employee benefits, compensation, communication, change management, employee research and the delivery of HR services. The firm�s other businesses are Reinsurance, which provides reinsurance intermediary services, and Tillinghast, which provides management and actuarial consulting to the financial services industry. Together, these businesses have over 8,000 employees and 78 offices in 76 cities in 24 countries. More information about HR Services is available at www.towersperrin.com/hrservices.
